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A reappraisal of Modigliani's finance theories

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  • Terenzio Cozzi

    (Università degli Studi di Torino, Dipartimento di Economia, Torino (Italy))

Abstract

The paper examines the influence of Modigliani's contributions to the theory of finance. As for the term structure of interest rates, the preferred habitat theory, had a mixed fortune: it was utilized by financial managers for a rather long time, before being discarded in the 1980s and, perhaps, being somewhat resumed in our days. The Modigliani-Miller theorem is considered as a landmark in finance theory, even if the controversies over both its assumptions and conclusions had indeed been very strong. By contrast, financial managers completely disregarded the thesis of an irrational undervaluation of stocks in inflationary periods. But most economists appreciate the proof that, for rather long periods, the market can be inefficient in channelling the resources towards the most productive utilizations.

Suggested Citation

  • Terenzio Cozzi, 2005. "A reappraisal of Modigliani's finance theories," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 215-235.
    • Handle: RePEc:psl:bnlaqr:2005:212
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9855/9737
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    References listed on IDEAS

    as
    1. Martha Douvogiannis & Joel Lander & Athanasios Orphanides, "undated". "Earnings Forecasts and the Predictability of Stock Returns: Evidence from Trading the S&P;," Finance and Economics Discussion Series 1997-06, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    2. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
    3. Merton H. Miller, 1989. "The Modigliani‐Miller Propositions After Thirty Years," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(1), pages 6-18, March.
    4. Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 569-569.
    5. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722, Elsevier.
    6. Stiglitz, Joseph E, 1969. "A Re-Examination of the Modigliani-Miller Theorem," American Economic Review, American Economic Association, vol. 59(5), pages 784-793, December.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Stiglitz, Joseph E, 1988. "Why Financial Structure Matters," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 121-126, Fall.
    9. Charles Goodhart, 1989. "Money, Information and Uncertainty: 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262071223, April.
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    Cited by:

    1. Roberto Marchionatti, 2023. "Terenzio Cozzi, 1939-2022. Ricordo di "un uomo di Cambridge" (Terenzio Cozzi, 1939-2022. Paying tribute to a "Cambridge Man")," Moneta e Credito, Economia civile, vol. 76(302), pages 169-178.

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    More about this item

    Keywords

    Finance;

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • G00 - Financial Economics - - General - - - General

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